Grant Stafford v. Steven S. Gareleck , 330 Ga. App. 757 ( 2015 )

FIRST DIVISION
PHIPPS, C. J.,
ELLINGTON, P. J., and MCMILLIAN, J.
NOTICE: Motions for reconsideration must be
physically received in our clerk’s office within ten
days of the date of decision to be deemed timely filed.
http://www.gaappeals.us/rules/
February 24, 2015
In the Court of Appeals of Georgia
A14A2088. STAFFORD v. GARELECK et al.
MCMILLIAN, Judge.
Grant Stafford appeals the trial court’s order dismissing his complaint asserting
claims for fraud, conversion, breach of fiduciary duty, and accounting against Steven
S. Gareleck and RSC Tennis, LLC (the “LLC”), arising out of the sale of the LLC.
We reverse for the reasons set forth below.
“On appeal, we review a trial court’s decision to grant or deny a motion to
dismiss de novo.” Liberty County School Dist. v. Halliburton, 328 Ga. App. 422, 423
(762 SE2d 138) (2014). And “[i]n reviewing the grant of a motion to dismiss, an
appellate court must construe the pleadings in the light most favorable to the
appellant with all doubts resolved in the appellant’s favor.” (Citation and punctuation
omitted.) Ewing v. City of Atlanta, 281 Ga. 652, 653 (2) (642 SE2d 100) (2007). We
may also consider any exhibits attached to and incorporated into the complaint and
the answer, also construing them in the appellant’s favor. Trop, Inc. v. City of
Brookhaven, 296 Ga. 85, 89 (2) (764 SE2d 398) (2014); Islam v. Wells Fargo Bank,
N.A., 327 Ga. App. 197 (757 SE2d 663) (2014).
And as our Supreme Court has explained, a motion to dismiss should not be
granted unless “the allegations of the complaint disclose with certainty that the
claimant would not be entitled to relief under any state of provable facts asserted in
support thereof[.]” (Citation omitted.) Austin v. Clark, 294 Ga. 773, 774-775 (755
SE2d 796) (2014). See also Anderson v. Flake, 267 Ga. 498, 501 (2) (480 SE2d 10)
(1997). Therefore, the movant must establish that the plaintiff cannot possibly
introduce evidence within the allegations of the complaint entitling him to the relief
sought. Austin, 294 Ga. at 774-775.
Stafford filed his complaint on December 30, 2013, and filed an amended
complaint on March 24, 2014. The complaint, as amended, asserted that Stafford and
Gareleck were members of the LLC, and Gareleck was a managing member.
Beginning in late 2011, Life Time Fitness, Inc. (“Life Time”), a Minnesota-based
company, expressed an interest in buying the LLC, and Life Time, in fact, purchased
the company in February 2012 for an unknown amount. In the interim, on January 28,
2
2012, Gareleck presented a document to Stafford that he represented Stafford must
sign in order to effectuate both the sale of the LLC to Life Time and the transfer and
payment of Stafford’s share of the proceeds, which Gareleck said amounted to
$170,099.22 (the “Contract”). Stafford signed the document based on Gareleck’s
representations. Stafford asserts, however, that unbeknownst to him, the document
transferred his interest in the LLC to Gareleck, allowing Gareleck to underpay
Stafford the true value of his membership interests and to defraud Stafford out of his
fair share of the sale proceeds.
Stafford later obtained information that led him to believe that he had been
underpaid, defrauded, or otherwise tricked by Gareleck into signing away his interest
in the LLC. Stafford notified Gareleck that the amount he received was unacceptable,
that he was demanding additional money and documentation evidencing the sale of
the LLC to Life Time, and that he was rescinding the Contract. Stafford asserts that
in response, Gareleck acknowledged Stafford’s rescission of the Contract and agreed
to pay Stafford additional money and provide documentation. Despite this
representation, Gareleck has failed to pay Stafford additional money or to provide
documentation of the sale. Stafford asserts that he is entitled to full payment of his
interest in the LLC.
3
The complaint additionally alleged that Gareleck engaged in misconduct in his
role as a managing member of the LLC “by authorizing the LLC to pay Gareleck
unfair and usurious rates of interest on loans made from Gareleck to the LLC, paying
significant sums from the LLC bank account to contractors for non-LLC related work
and expenses, paying for personal trips and travel out of the LLC bank account, and
engaging in other self-dealing,” which negatively impacted the amount of sales
proceeds realized on the sale to Life Time.
Based on these allegations, Stafford asserted claims for fraud based on false
representations made by Gareleck relating to the sale of the LLC, fraud in the
inducement in connection with Stafford’s execution of the Contract, conversion of
sales proceeds due and owing to Stafford, and breach of fiduciary duty arising out of
Gareleck’s duties as a managing member of the LLC. The complaint also sought an
accounting, punitive damages, and attorney fees.
The LLC and Gareleck filed a verified answer to Stafford’s complaint, in which
they denied liability, but admitted, inter alia, that Stafford accepted $170,099.22 after
signing the Contract on January 28, 2012. Gareleck and the LLC identified the
Contract as the “Mutual Release and Ownership Interest Purchase” (the “Release”),
which they attached to their answer. The answer further asserts that Stafford had
4
neither returned nor offered to return the $170,099.22 he received in exchange for
signing the Release. The Release itself represented that Stafford held a one-third
interest in the LLC and the $170,099.22 was payment for that ownership interest. The
Release also stated that Stafford was releasing “any and all claims and liabilities,
known and unknown, of every kind and nature whatsoever in law or equity, which
[Stafford] had, now has, or may have against” the LLC and Gareleck. The Release
further provided that Stafford would not “file any charge or complaint against [the
LLC] or [Gareleck] with any government agency or . . . any lawsuit or other legal
proceeding with any court asserting any claim that is released in this Release.”
The trial court subsequently granted a motion to dismiss filed by Gareleck and
the LLC on the grounds that the Release signed by Stafford released all claims against
Gareleck and the LLC; that Stafford failed to plead his fraud in the inducement claim
with sufficient particularity; and that the merger clause in the Release barred
Stafford’s claims. On appeal, Stafford argues that the trial court erred (1) in relying
upon the release language in the Release since his signature on that document was
procured by fraud and he rescinded the Release prior to filing suit; (2) in concluding
that he did not properly plead a fraud in the inducement claim; and (3) in concluding
that the merger clause bars his claims.
5
1. We turn first to the issue of rescission, which could be determinative in both
Stafford’s first and third enumeration. “In general, a party alleging fraudulent
inducement to enter a contract has two options: (1) affirm the contract and sue for
damages from the fraud or breach; or (2) promptly rescind the contract and sue in tort
for fraud.” (Citation and punctuation omitted.) Novare Group, Inc. v. Sarif, 290 Ga.
186, 188 (1) (718 SE2d 304) (2011). “Where a party elects to rescind the contract, he
must do so prior to filing the lawsuit.” Id. And Georgia courts have long recognized
that a tender to restore, or offer to restore, the consideration received is a condition
precedent to filing a lawsuit for fraud in the inducement. Id.; Williams v. Fouche, 157
Ga. 227 (121 SE 217) (1924).
Stafford’s complaint alleged that he made a prompt rescission of the contract,
but it did not address the issue of tender. However, under the notice pleading
requirements of Georgia’s Civil Practice Act, Stafford was not required to do so. See
Blower v. Jones, 226 Ga. 847, 849 (3) (178 SE2d 172) (1970) (issue of tender not “a
matter raised by a mere general motion to dismiss,” but an issue of fact); Fender v.
Fender, 226 Ga. 129, 130 (4) (173 SE2d 211) (1970) (issue of tender a matter of
evidence, not pleadings). Nevertheless, Stafford concedes in his briefing that he did
not tender the $170,099.22 back to Gareleck and the LLC, but he asserts he was not
6
required to make a tender because this case falls within an exception to the tender
requirement.
Under Georgia law, a party seeking to rescind must either make a tender “or
show a sufficient reason for not doing so; he need not tender back what he is entitled
to keep, and need not offer to restore where the defrauding party has made restoration
impossible, or when to do so would be unreasonable.” (Citation omitted; emphasis
supplied.) Mitchell v. Backus Cadillac-Pontiac, Inc., 274 Ga. App. 330, 334 (2) (618
SE2d 87) (2005). Stafford argues that because he was entitled to more than the
$170,099.22 he received for his one-third ownership interest in the LLC, he did not
have to return what he was entitled to retain. See Georgia R. Bank & Trust Co. v.
Liberty Nat. Bank & Trust Co., 180 Ga. 4, 19 (177 SE 803) (1934) (“If the allegations
[of the complaint] be true, the plaintiff is entitled to recover many times the amount
which it may have received . . . , and equity will not require the useless procedure of
returning a part which should be included in the larger sum which it seeks to
recover.”); Farnell v. Brady, 159 Ga. 209 (125 SE 57) (1924) (same). See also
Remediation Svcs., Inc. v. Georgia-Pacific Corp., 209 Ga. App. 427, 433 (1) (433
SE2d 631) (1993); Crews v. Cisco Bros. Ford-Mercury, 201 Ga. App. 589, 590 (1)
(411 SE2d 518) (1991); Krawagna v. H & S Liquor, 176 Ga. App. 816, 818 (4) (338
7
SE2d 284) (1985); Atlanta Life Ins. Co. v. Walker, 53 Ga. App. 80, 84 (184 SE 776)
(1936).
However, we need not reach the issue of whether Stafford was required to
make a tender in this case because he alleged in his complaint that he gave prompt
notice of his intention to rescind in the spring or summer of 2012; that Gareleck
acknowledged the rescission of the parties’ contract; and that he agreed to pay
Stafford additional monies. Therefore, because it is possible that Stafford could
present evidence showing that Gareleck agreed to a rescission of the parties’ contract,
regardless of any tender, Gareleck and the LLC have failed to carry their burden of
showing that Stafford could not possibly introduce evidence within the allegations
of the complaint demonstrating that the Release had been rescinded.1
1
Although Stafford did not file a claim for rescission in his complaint and only
sought to recover damages, the allegations and claims in the complaint express no
clear intent to affirm the Release. Stafford makes no claim for breach of contract, but
rather asserts claims of fraud and fraud in the inducement in connection with the
Release, which could also support a claim of rescission. Under these circumstances,
we find that nothing in the complaint contravenes Stafford’s intent to rescind. See
Conway v. Romarion, 252 Ga. App. 528, 532 (1) (557 SE2d 54) (2001). But as this
Court noted in Conway, “[t]he better practice, of course, would have been to assert
a separate claim for rescission in the complaint.” Id.8
Accordingly, given the possibility that Stafford could present evidence
showing that the Release had been rescinded prior to suit, the trial court erred in
applying the language of that document, including the merger clause, as grounds for
dismissing Stafford’s complaint. See Catrett v. Landmark Dodge, Inc., 253 Ga. App.
639, 641 (1) (560 SE2d 101) (2002) (merger clause in rescinded contract does not bar
fraud claims). See also Authentic Architectural Millworks, Inc. v. SCM Group USA,
Inc., 262 Ga. App. 826, 828 (2) (a) (586 SE2d 726) (2003) (merger clause does not
bar claims arising from misrepresentations contained in the contract upon which
plaintiff relied).
2. The trial court also found that Stafford failed to plead his fraud in the
inducement claim with sufficient particularity. Although OCGA § 9-11-9 (b) requires
that claims of fraud be pled with particularity, “a complaint alleging fraud should not
be dismissed for failure to state a claim unless it appears beyond a doubt that the
pleader can prove no set of facts in support of his claim which would entitle him to
relief.” (Citation omitted.) Roberts v. Nessim, 297 Ga. App. 278, 284-285 (2) (676
SE2d 734) (2009).
“The tort of fraud [including fraudulent inducement] has five elements: a false
representation by a defendant, scienter, intention to induce the plaintiff to act or
9
refrain from acting, justifiable reliance by plaintiff, and damage to plaintiff.” (Citation
and punctuation omitted.) Sims v. Bayside Capital, Inc., 327 Ga. App. 47, 51 (2) (755
SE2d 520) (2014). Here, the trial court found that Stafford failed to allege the content
of any purported misrepresentation or how it was communicated and further failed
to allege facts even remotely suggesting that he justifiably relied upon any purported
misrepresentation because he had the opportunity to read and understand the terms
of the Release before he signed it.
However, the claim for common law fraud set out in the complaint, as
amended, contains allegations detailing a number of misrepresentations and
fraudulent omissions by Gareleck and the LLC with regard to the sale of the LLC to
Life Time. The claim for fraudulent inducement incorporates these allegations and
alleges that Gareleck and the LLC made these misrepresentations or omissions with
the intent of inducing him to sign over his interest in the LLC for less than its fair
value. Stafford also alleges that he relied on these misrepresentations to his detriment.
Additionally, the complaint alleged that as a managing member of the LLC, Gareleck
owed a fiduciary duty to Stafford in connection with LLC business.
Although Stafford alleges that Gareleck made a number of misrepresentations,
the gist of his claim for fraud in the inducement was that he signed the Release based
10
on alleged misrepresentations that the $170,099.22 he received represented the full
and fair value of his one-third ownership interest. Given the allegations that Gareleck
owed him a fiduciary duty, we cannot say beyond a doubt that Stafford could present
no evidence showing that he justifiably relied on any representations by Gareleck. See
Northwest Plaza, LLC (MI) v. Northeast Enterprises, Inc., 305 Ga. App. 182, 191(3)
(a) (699 SE2d 410) (2010) (“Issues of justifiable reliance and proper due diligence
are generally for the jury.”); Savu v. SunTrust Bank, 293 Ga. App. 683, 690-691 (3)
(668 SE2d 276) (2008) (“Because a confidential relationship may be found whenever
one party is justified in reposing confidence in another, the issue of whether a
confidential relationship has been created is ordinarily reserved for the jury.”)
(citation omitted). Moreover, the Release itself places the same value on Stafford’s
interest and contains no language indicating that this amount was intended as a
settlement, compromise, or discount as to that value. Thus, at this stage of the
litigation, we cannot say beyond a doubt that merely reading the Release should have
placed Stafford on notice of any alleged misrepresentation as to the value of his
interest.
We find that the allegations in the complaint, as amended, are sufficient to state
a claim of fraud in the inducement, and the trial court erred in dismissing Stafford’s
11
complaint on the ground that it failed to allege such a claim with the requisite
particularity.
Judgment reversed. Phipps, C. J., and Ellington, P. J., concur.
.
12